A fuzzy logic multi-criteria approach to assess intellectual capital

Purpose Business performance depends in great measure on an efficient management of Intellectual Capital (IC), making its evaluation a critical obstacle to gain competitive advantage against competitors. In fact, most firms have only a dim notion of how and what they invest in Intellectual Capital, let alone what they receive from these investments, and, as a result, many of them either under-invest or make ineffective investments. The aim of the paper is to assess the relative importance of Intellectual Capital components with respect to their contribution to the company value creation, in order to obtain guidelines for IC management and investments. Design/methodology/approach We propose a model for Intellectual Capital evaluation by combining fuzzy logic and a multiple criteria decision making method. Fuzzy logic is a form of multi-valued logic derived from fuzzy set theory in order to deal with reasoning that is approximate rather than precise, for this reason it is suitable for the subjective judgments and the qualitative assessments that are typical in the evaluation processes in Intellectual Capital management. Originality/value We highlight the importance of assessing the relative importance of Intellectual Capital components. In a real business scenario, many Intellectual Capital components are of intangible nature, therefore they are difficult or impossible to measure quantitatively. For this reason, experts and managers are greatly supported by the use of linguistic variables in the evaluation process of Intellectual Capital. From the managers perspective, this IC evaluation model represents a value-adding tool in taking better decisions: they can handle and improve Intellectual Capital effectively and efficiently in accordance with the different performance levels of each Intellectual Capital component. Furthermore, the application of the method gives to companies a direction for progress and constitutes a basis for the formulation of future Intellectual Capital management. Practical implications The evaluation of Intellectual Capital components is performed by linguistic fuzzy logic and Analytic Hierarchy Process (AHP). Generally, most experts provide linguistic assessments rather than exact numerical values to express their opinions for evaluating Intellectual Capital. Consequently this model can be used to better capture and foster Intellectual Capital dynamics: experts and managers are greatly supported by the use of linguistic variables in the evaluation process of Intellectual Capital. Following this lead, we propose a method to assess the comparative importance of a company Intellectual Capital components, allowing a comparison between different firms of the same industry in the perspective of Intellectual Capital management improvement through benchmarking. Finally, the presented model is applied to the Intellectual Capital evaluation of a real case study company.